Question 1

When auditing inventories,an auditor would least likely verify that

Accepted Answer

Verifying that all inventory owned by the client is on hand at the time of the count is not always possible or practical, especially for items in transit or held at third-party locations. Auditors focus on proper inventory pricing, appropriate financial statement presentation, and the correct accounting for damaged and obsolete items.

Question 2

To determine the client's planned amount and timing of production of a product,the auditor will review the

Accepted Answer

To determine the client's planned amount and timing of production of a product, the most relevant document to review is the production plan. This plan provides information about the expected output of the client's manufacturing process, including the quantity of goods to be produced, the timing of the production process, and the resources required for production. The sales forecast may provide an estimate of the demand for the product, but it does not provide information about the client's production plan. Inventory reports and the purchases journal may provide data about the client's historical production and purchasing activity, but do not necessarily reflect the client's planned production for the period under audit.

Question 3

Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?

Accepted Answer

The warehouse manager being responsible for maintenance of perpetual inventory records is an internal control weakness because it violates the principle of segregation of duties. This principle requires that the responsibility for record-keeping and the physical custody of assets should be held by different individuals to reduce the risk of errors or fraud.

Question 4

When evaluating inventory controls,an auditor would be least likely to

Accepted Answer

Policy and procedure manuals are important in understanding how inventory is controlled, but they are not sufficient in evaluating the effectiveness of the controls. Inspecting documents, making inquiries, and observing procedures provide more direct evidence of how inventory controls are being implemented and whether they are effective.

Question 5

An auditor selected items for test counts while observing a client's physical inventory.The auditor then traced the test counts to the client's inventory listing.This procedure most likely obtained evidence concerning management's balance assertion of

Accepted Answer

The answer of An auditor selected items for test counts...

Question 6

Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?

Accepted Answer

Having separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records would provide a more secure environment for the high-value items, and would allow for more careful monitoring and control. This would be a more effective solution than maintaining a perpetual inventory of only the more valuable items, as it would not leave the lower-value items unprotected. Option B is not a specific solution to the problem of preventing or detecting inventory theft. Choice D would be impractical and time-consuming as it would require constant monitoring from a manager for items above $50.

Question 7

Your client counts inventory three months before the end of the fiscal year.Internal controls over inventory are excellent.Which procedure is not necessary for the inventory roll-forward?

Accepted Answer

Requesting the client to recount inventory at the end of the year is not necessary if internal controls over inventory are excellent and the inventory was already counted three months before the end of the fiscal year. The other procedures (A, B, C) help in verifying the accuracy of the inventory records during the roll-forward period.

Question 8

To make a year-to-year comparison of inventory turnover most meaningful,the auditor will perform the analysis

Accepted Answer

Analyzing inventory turnover by product provides the most detailed and meaningful insights, as it allows for identification of specific products that may be affecting overall inventory performance.

Question 9

A retailer's physical count of inventory was higher than that shown by the perpetual records.Which of the following could explain the difference?

Accepted Answer

The answer of A retailer's physical count of inventory was...

Question 10

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about

Accepted Answer

The answer of An auditor would vouch inventory on the...

Question 11

When testing a company's cost accounting system,the auditor uses procedures that are primarily designed to determine that

Accepted Answer

The procedures used by the auditor in testing a company's cost accounting system are primarily designed to determine that costs have been properly assigned to finished goods, work-in-process, and cost of goods sold. This is essential to ensure that the financial statements accurately reflect the company's profitability and financial position. While physical inventories and quantities on hand are important considerations, they are secondary to the proper assignment of costs. Additionally, while it is important to ensure that the system is in accordance with generally accepted accounting principles, this is also secondary to ensuring proper cost assignment.

Question 12

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about

Accepted Answer

Analyzing inventory turnover rates would provide evidence concerning management's balance assertions about accuracy and valuation, as it relates to the value of inventory and how quickly it is being sold by the company.

Question 13

From the auditors' point of view,inventory counts are more acceptable prior to the year end when

Accepted Answer

Accurate perpetual inventory records are maintained prior to year-end, making inventory counts more acceptable from the auditors' point of view. This allows for easier reconciliation of the recorded inventory balances with the physical count, reducing the risk of misstatement in the financial statements. Weak internal control, slow-moving inventory, or inventory held on consignment do not necessarily impact the acceptability of inventory counts prior to year-end.

Question 14

An auditor reviews job cost sheets to test which transaction assertion?

Accepted Answer

Reviewing job cost sheets primarily tests the accuracy assertion, as it involves verifying that the amounts recorded for job costs are correct and appropriately reflect the actual costs incurred.

Question 15

Which of the following internal control activities most likely addresses the completeness assertion for inventory?

Accepted Answer

Prenumbered receiving reports help to ensure that all inventory items received are recorded in the accounting system, addressing the completeness assertion. Option A addresses the accuracy assertion by reconciling the work-in-process account with subsidiary records. Option B addresses the custody assertion by separating custody of finished goods from receiving. Option D addresses the authorization assertion by separating the payroll department from inventory accounting personnel.

Question 16

Which of the following auditing procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

Accepted Answer

Inspecting agreements to determine whether any inventory is pledged as collateral or subject to any liens would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories. This procedure would identify any legal encumbrances on the inventory that may impact the entity's ability to sell or use the inventory. The other options do not directly relate to rights and obligations related to inventories.

Question 17

A client maintains perpetual inventory records in quantities and in dollars.If the assessed control risk is high,an auditor would probably

Accepted Answer

The answer of A client maintains perpetual inventory records in...

Question 18

Which cycle is not directly linked to the production cycle?

Accepted Answer

The finance and investment cycle is not directly linked to the production cycle as it involves activities related to acquiring and managing financial resources such as investments, loans, and equity financing, rather than the production of goods and services. The acquisition and expenditure cycle, payroll cycle, and revenue and collection cycle are all related to the production cycle as they involve the acquisition of raw materials, payment of employee salaries, and collection of revenues from the sale of products or services.

Question 19

The auditor tests the quantity of materials charged to work-in-process by vouching these quantities to

Accepted Answer

The answer of The auditor tests the quantity of materials...

Question 20

An auditor will usually trace the details of the test counts made during the observation of physical inventory counts to a final inventory compilation.This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are

Accepted Answer

Tracing the details of the test counts made during the observation of physical inventory counts to a final inventory compilation provides evidence that the items observed by the auditor are included in the final inventory schedule. It does not provide evidence of ownership or obsolescence, and it assumes that the items were physically present at the time of the physical inventory count, which is already established by the observation.

Quiz 9: Production Cycle